Eq: Total Market

(New York)

The election may still be ten months away, but the whole year is likely to be framed by it, markets being no exception. With that in mind, Morgan Stanley has some advice for investors. The first thought they offer is that in this case, being reactive is probably better than being proactive. If you reflect on 2016, everyone thought that a Trump victory would hurt stocks. The exact opposite happened. In this case, don’t assume a Democrat victory would be bad. Accordingly, it may be wise to wait until the election and then allocate as seems fit at that time. The other thing to bear in mind is that a Democratic sweep could be surprisingly good for stocks. According to Morgan Stanley, ““We would expect that a Democratic sweep in 2020 could deliver the greatest impulse to the economy” because of its greater odds of bringing a fiscal stimulus than when the government is divided between parties.


FINSUM: We really like this line of reasoning from MS.

(New York)

Investors are currently afraid of the turmoil in the Middle East. The US killing of Iran’s military leader has greatly stoked tensions, and markets are worried about a war breaking out in the Middle East. Since there have been many geopolitical issues in the region in recent history, there are a lot of examples of how markets have reacted. Suntrust bank analysts summarize how the market usually reacts, saying “While it is not unusual to see short-term weakness, these geopolitical events tend to have a transitory market impact … For example, when looking at a sample of geopolitical/military events, the S&P 500 was higher 12 months later in nine of the 12 events we reviewed. The three instances where stocks were down a year later coincided with a recession”.


FINSUM: If a full on war does not happen, we expect the effects will be transitory. The other non-military issue that could cause a problem is a big supply shortage in oil.

(New York)

All the worries about the economy seem so 2019 now, right? Wrong. A big new warning sign just came out of that all important sector that we love to worry about—manufacturing. New data shows the US manufacturing sector is in its worst shape since 2009, according to the ISM. The sector only accounts for 10% of the economy, but it has been suffering mightily as Trump has ratcheted up the trade war.


FINSUM: So the question is whether this weakness is just because of the trade war or whether it signals something more broad. We think it is primarily trade-driven. As a consolation, garbage stocks have usually done very well when manufacturing is weak, according to Barron’s.

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